Africa is now firmly on the radar of the world’s largest investors, but this interest is still some way off realisation according to last year’s figures from the Emerging Markets Private Equity Association (EMPEA), which showed only a fraction of global funds heading to the continent.
Mark Casey, who directs EMPEA’s consultancy, highlighted at the Africa Development Forum in Marrakech that about $300bn of private equity was raised globally in 2013, but that of the total only 12% ($38bn) went to emerging markets, and 3% ($1.2bn) to Africa-focused funds.
However, as sizeable investors such as Carlyle Group Co-CEO David Rubenstein point out, opportunities in Africa are “far greater than people thought years ago”, and if an “explosion in private equity” is likely to occur anywhere in the next couple of years, it will be in Africa.
The comment following Carlyle’s announcement of a pausation of North Africa activities in favour of a $700m Sub-Saharan fund that counts Nigerian tycoon Aliko Dangote as a partner.
Ijeoma Agboti, a director for Dubai’s Abraaj Group, pursued that “an important development that we have witnessed and contributed to is the regionalisation of private equity in Africa. Businesses need to transcend borders, and it is very important to build conglomerates.”
Abraaj also has plans to raise a fund of $500-700m and a spend of $200-300m in the coming months, alongside another $530m joint fund with Carlyle and Edmond de Rothschild.
However, there is also recognition of the fact that all business needs to begin somewhere, and as EMPEA consultancy director Casey illustrated: “One question institutional investors have is: Are there enough companies for all the capital that is being raised for the continent?”
A key dynamic, as Nathan De Assis, executive director of Zambia’s Equity Capital Resources, highlighted their work in Zambia, is a focus on providing the necessary resources for SMEs.
“At the heart of the model is the idea that SMEs are the key engine of African growth. Investors need to provide the resources to allow SMEs to grow, and once SMEs grow, the larger players within the market can pick them up and bring them to the next level,” she said.
One neglected source of internal African liquidity being explored with policy makers by De Assis’ company is pension funds – which currently represent a rich vein of potential liquidity.
David Ashiagbor from the African Development Bank (AfDB) confirmed the importance of pension funds in countries such as Nigeria, where they have grown from $6bn in 2008 to $25bn, while Namibia has pension assets worth 80% of its GDP; Botswana, 40% of its GDP.
In a final dynamic, CEO of XCOM Africa Marc-Peter Zander recently spoke with Gulf Africa Review to discuss the particular challenge for SMEs in finding suitable African partners.